Contract Risk
Contract risk is the amount of potential loss associated with an individual option contract or one unit of an options strategy under the trader's defined risk assumptions.
Why it matters to you
Before deciding how many contracts to trade, the trader needs to know how much risk each contract or strategy unit represents. Example: Maximum loss per spread: $250 Maximum planned position risk: $1,000 Theoretical maximum number under that risk constraint: 4 spreads before considering fees, portfolio exposure and other factors.